A decade of savings isn’t enough for most first-time homebuyers as deposits soar out of reach

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It takes a first-time homebuyer almost 11.5 years to save a 20 percent down payment on a home at an average price.

And as of March 2022, the national median housing value was estimated at eight and a half times the nationwide median annual household income.

That’s a record high, according to CoreLogic’s latest housing affordability report, and is up from 6.8 since the outbreak of COVID-19 two years ago.

CoreLogic bases its modeling on a national median home value of $750,000 and income data from the Australian National University (ANU) that assumes an average of about $86,000.

According to CoreLogic, it takes 8.5 times the median income to service a $750,000 home loan.

Australian research leader Eliza Owen says that while house prices are likely to fall across the country as interest rates continue to rise, that won’t necessarily improve affordability.

Head and shoulders portrait of a woman with brown hair wearing a suit jacket.
Eliza Owen, CoreLogic’s head of Australian research, says that while house prices are likely to fall across the country as interest rates continue to rise, it won’t necessarily improve affordability. (Included, CoreLogic)

Falling home prices aren’t something Tarryn Hendry, the first-time homebuyer, considered when purchasing her property in Brisbane earlier this year.

It took her and her partner years to save up and find a suitable property, and when they finally got to the market, they had to spend $200,000 over budget.

.DO NOT post Rachel Pupazzoni artwork
Tarryn Hendry and her partner had to spend $200,000 over budget to buy their home in Brisbane. (ABC News: Stephen Cavenagh)

CoreLogic says that from late September 2020 to late March 2022, Australian home values ​​experienced an “extraordinary bounce”.

During this period, property prices in Australian capital cities rose by 27.8 percent.

“We started with a cost range [budget of] $550,000 to $600,000, and then we ended up buying a house that was $200,000 more than that,” Ms. Hendry told ABC News.

“We’re priced out…there was huge competition.

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Affordable housing means house prices need to come down(Nassim Khadem)

The cost of servicing mortgage repayments is now above the ten-year average

According to CoreLogic, the proportion of household income used to service new mortgage payments was 41.4 percent nationally as of March 2022, above the 10-year average of 36.5 percent.

“This was the third consecutive increase nationally, with higher average mortgage rates and home values ​​contributing to the increase,” CoreLogic’s report said.

The report suggests that in an environment of higher interest rates, mortgage viability will become more difficult, not only causing more Australians to experience mortgage stress, but also making it harder for first-time homebuyers to get a loan they can service.

At the same time, rents are also rising, which affects young people’s ability to save.

Nationally, the proportion of household income now required for rent on a new lease increased to 30.6 percent, up from 29.8 percent in December 2021 and 28.5 percent in the March quarter of 2020.

CoreLogic chart of income versus service rental
CoreLogic says the percentage of service rental revenue has also increased.

According to the report, housing affordability conditions vary significantly between regions.

“Relatively weak rental market conditions in Sydney and Melbourne, particularly across the housing sector in the first year of the pandemic, meant that the income level required to service the rent for a new lease has actually fallen in those cities since March 2020,” it was said .

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Rate hikes could put 300,000 mortgage borrowers in default(Nassim Khadem)

Higher interest rates, falling home values ​​must be taken into account before buying a property

Most economists at the big four banks expect further rate hikes.

CBA expects the policy rate to rise to 1.60 percent by February 2023, Westpac and ANZ expect it to reach 2.25 percent by May 2023, while NAB expects it to reach 2.60 percent by August 2024 will reach.

Economists also predict that real estate values ​​will fall between 5 and 20 percent over the next two years.

Ms Owen says assuming a 15 percent fall in house prices and a mortgage rate close to 5 percent (variable rate, assuming the cash rate goes up to 2.25 percent), “you save on the deposit, but you give more over the life of the loan”.

CoreLogic Compromise 20%
Even if it becomes easier to save on a deposit when real estate prices fall, when interest rates rise, fitness for purpose is an issue.

“Balance of higher interest costs with lower prices should be an important consideration for first-time homebuyers,” says Ms. Owen.

John Campbell, head of home loans at ANZ, said there is a group of customers who have borrowed six or more times their income, which could lead to mortgage stress as interest rates rise.

He urged them to speak to the bank if they get into trouble “so we can see what we can do to help.”

The deposit hurdle for first-time buyers

CoreLogic’s report finds that one of the biggest barriers to homeownership in Australia is the upfront cost for first-time homebuyers, which includes the deposit requirement.

In March 2022, a 20 percent down payment for the current median home value across Australia was $147,795.

“Assuming a 15 percent annual household income saving rate, the current estimated time to save a 20 percent deposit nationwide is 11.4 years, a record high,” the report said.

“If you look at the back rows of this metric, stretching back to 2001, this is the fastest increase in the metric over a two-year period since records began.

“It underscores the speed at which real estate values ​​have risen during the current upswing, which has seen annual growth rates at their highest since the 1980s.”

Ms Hendry says housing affordability has been poor for a number of years and is deteriorating as wages fail to rise in line with inflation.

She worries about the profitability of mortgages when interest rates rise and house prices fall, but her income doesn’t change.

“Wage growth must follow,” she says.

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Thousands of Australians are at risk of not being able to pay back their mortgages

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